Forecast: Tesco profits to soar - but retailer faces cost-of-living questions

The City will be keen to hear from Tesco about how bosses at the supermarket intend to support shoppers during the cost-of-living crisis when the company unveils its full-year results on Wednesday.

Analysts expect the grocery giant to maintain momentum after an especially busy Christmas meant it dominated in its share of the market.

Consensus in the City puts group operating profits in the region of £2.75 billion after bosses said profits would be above expectations.

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Tesco has a 27.4 per cent share of the grocery market according to Kantar Worldpanel, holding strong against rivals Sainsbury's, Asda and Morrisons, which have all seen their share decline.

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However, the supermarket may face pressure to reduce prices in line with low-cost competitors as households face an income squeeze following the energy price cap rise, exacerbated by Russia's invasion of Ukraine.

UK households are set to be £900 worse off this year with the lowest earners facing a £1,300 knock to finances, a PwC report found this month.

Economists warn this could lead consumers to tighten their belts on the weekly food shop.

Supermarket giant Tesco will update on how the rising cost of living is affecting consumers when it reveals full-year results this week (file image). Picture: contributed.

Investment platform AJ Bell said Tesco may have some "pricing power" against cost inflation as a key provider of consumer staples and given its domination of the market.

Danni Hewson, financial analyst at AJ Bell, said: "At a time when inflation is a key concern, and customers will start to trade down or even buy less, this could be a useful part of Tesco's armoury when it comes to driving profits and cash flow and protecting profit margins."

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